Anticipating the 2024 Social Security COLA: Insights into Potential Benefit Increases

 

Anticipating the 2024 Social Security COLA: Insights into Potential Benefit Increases

Introduction:

In the forthcoming 2024, the Social Security cost-of-living adjustment (COLA) is expected to hover around 3.2%, barring any unexpected developments in the U.S. government's September 2023 inflation report. This estimate is derived from the most recent Consumer Price Index (CPI) data provided by the Department of Labor.

Understanding the CPI-W:

The CPI Index for Urban Wage Earners and Clerical Workers (CPI-W), which serves as the basis for calculating annual Social Security adjustments, surged by 3.4% in August. This marked a notable increase from the 2.6% recorded in July.

Calculating the COLA:

To determine the COLA, the CPI-W figures for July, August, and September are combined and averaged. This average is then compared to the third-quarter average from the previous year. The percentage difference represents the COLA percentage, which will impact Social Security checks starting in January 2024.

The Impact of a 3.2% COLA:

The Senior Citizens League (TSCL), a non-partisan seniors advocacy group, revised its 2024 COLA estimate to 3.2% following the higher CPI-W reading in August. A 3.2% COLA would result in an approximate $59 increase in the average monthly retiree benefit. This is notably lower than the 8.7% COLA seen this year, which boosted the average monthly check by about $146. In 2022, the COLA was 5.9%. The official announcement for the 2024 cost-of-living adjustment is expected on October 12, coinciding with the release of the September inflation numbers.

Considering the Financial Health of Social Security:

Despite the reduced COLA, there is a "silver lining" as it falls below the 3.3% COLA that the Social Security Board of Trustees assumed in their latest analysis of the Social Security trust fund. This fund, officially known as the Old Age and Survivors Insurance (OASI) Trust Fund, is projected to become insolvent in approximately a decade. When this occurs, Social Security will rely solely on payroll taxes, currently covering about 77% of benefits. Estimates from the nonprofit Committee for a Responsible Federal Budget suggest that a typical newly retired dual-income couple could face a benefit cut of $17,400 when the OASI becomes insolvent.

The Potential Impact of the COLA:

A larger-than-expected COLA in 2024 could hasten the trust fund's insolvency timeline. However, a 3.2% COLA might not have the same effect. It would also be the smallest COLA increase since 2021, albeit still exceeding the 2.6% COLA average over the past decade.

Impact on Social Security Checks:

Here's how the average benefit for different Social Security recipient groups would change in 2024, based on data from the Social Security Administration:

- Retired workers: $1,899.16 (an increase of $58.89 per month from 2023)

- Spouses: $918.08 (an additional $28.47)

- Survivors: $1,501.02 (an increase of $46.54)

- Disabled workers: $1,534.41 (an additional $47.58)

In conclusion, the 2024 Social Security COLA is poised to be around 3.2%, offering some relief to recipients while mitigating the trust fund's challenges. However, the situation remains fluid, pending the official announcement in October.